Spend Analysis Pro Tips

Analyzing your spend is easier said than done. Same goes for executing cost reduction projects based on that analysis. The Spend Analysis experts at SpendConsultant and Source One make your life a bit easier with our Spend Analysis Pro Tips. Here you’ll find tips and tricks for actionable spend analysis, straight from the data scientists and category subject matter experts at Source One.

Pro Tip #1 Collect Enough Historical Data

You can’t conduct a spend analysis without taking a dive into your historical spend data. How much do you need? That answer will vary, but it’s always essential to collect enough. Insufficient historical data can lead you to create an ineffective market basket and miss out on savings.

Pro Tip #4 Don’t Rely on Automated Processes

Full automation opens your spend analysis effort to a number of risks. Supplier identification and classification, for example, can easily get tricky when you trust your computers too much. Balancing automation with human oversight can help identify these issues before they impact your initiatives.

Pro Tip #7 Cleanse Your Data Properly

Improper data cleansing can prove disastrous when it comes to visualizing your spend data and the vendor landscape. For example, consider the dangers of name fragmentation. If you cleanse your data without paying attention to naming conventions, you could ignore a heap of spend data.

Pro Tip #10 Reach an Actionable Conclusion

The best spend analysis in the world won’t mean anything if you don’t draw the appropriate conclusions. Avoid growing complacent at any point throughout the life of a savings initiative. Failing to act quickly can mean missed opportunities.

Pro Tip #13 Establish a Cleansing Schedule

Cleansing your data is not a one-and-done exercise. You won’t just collect more data over the years, but your rules and priorities for governing data will also evolve. Schedule regular reviews to ensure your rules still apply, and your data is still clean.

Pro Tip #2 Don’t Settle for Data Alone

Procurement teams are embracing the strategic potential of data analytics. Too many, however, get fixated on the data side of things. On its own, data tells you nothing. Acting on savings goals requires tools and processes that turn data’s raw facts into knowledge and wisdom.

Pro Tip #5 Account Shifting Spend Trends

Taking a year-by-year look at your relationship with suppliers enables you to identify shifting purchasing trends to make more strategic decisions and avoid inefficient relationships. This is particularly important for spend categories that will gradually disappear as digitization continues.

Pro Tip #8 Remember to Assess Niche Players

Internal stakeholders often resist Procurement’s influence because they don’t believe the department speaks their language. To encourage collaboration and reach optimal spend, Procurement needs to strive for visibility into the supplier relationships established by other departments.

Pro Tip #11 Watch out for the Domino Effect

Making one mistake during your spend analysis sets your Procurement team up for more headaches in the near future. Issues like improper cleansing or inattention to historical spend quickly pile up and lead to considerable lost savings.

Pro Tip #14 Taxonomies Have Limitations

Spend classifications like UNSPSC codes and other industry standards don’t work for everyone. It’s important to review these systems to ensure they fit your specific needs and for classifying spend categories and identifying savings opportunities.

Pro Tip #3 When it Comes to Data, Less is More

Many spend analysis solutions bombard users with highly granular data. There’s a time for granularity, but most sourcing initiatives require just a few basic details. Armed with a this high-level information, Procurement teams should have no problem achieving cost savings.

Pro Tip #6 Always Consider the Little Guy

On paper, a million dollar supplier looks more appealing than a $10,000 one. Spend analyses, however, are rarely so simple. Ignoring suppliers that look like small fries could mean missing out spend consolidation opportunities. These could provide hard dollar savings and new efficiency.

Pro Tip #9 Don’t Forget to Do Your Due Diligence

Faced with a large supply base, it’s tempting to take certain aspects of spend analytics lightly. Organizations that look to cut corners in their short-term endeavors typically find themselves facing more serious concerns down the road. Don’t waste time tomorrow by trying to save time today.

Pro Tip #12 Look Beyond Price and Usage

Procurement beware. Price and usage data provide the foundation of spend analytics, but they’re not sufficient for ambitious savings initiatives. When it comes time to develop strategies, make sure to assess data like contract terms and quality levels.

Pro Tip #15 Review Taxonomies Regularly

Businesses and their spend patterns change. Some of these changes might invalidate the taxonomies you use to classify and catalog spend. Be mindful of activities that might necessitate a change and develop plans for implementing these changes.